Record yuan strength hurts Chinese exports, immediate let-up unlikely

[cirr]

Record yuan strength hurts Chinese exports, immediate let-up unlikely



June 11, 2015 4:20 AM

By Patturaja Murugaboopathy

BENGALURU (Reuters) - Already hit by ebbing global demand, Chinese exports face another obstacle - the yuan has strengthened against the currencies of China's trading partners by a record margin, data from the Bank of International Settlements (BIS) shows.

The yuan's real effective exchange rate (REER) - calculated on a trade-weighted basis against a basket of currencies and adjusted for inflation - stood at 130.4 in April versus a base of 100 in 2010, the BIS data shows. That means the yuan is 30 percent stronger than the currencies of its trading partners compared with 2010 levels. It was also near the record 131.4 in March. The currencies of Japan, India and Southeast Asian nations have depreciated against the dollar so far this year as a result of their expansionary monetary policies. Yet the yuan (CNY=CFXS) has been flat against the dollar.

China's exports (CNEXP=ECI) in the first five months rose 0.7 percent from a year earlier, far from the government's target of 6 percent this year. Exports to Europe and Japan fell 6.9 percent and 8.1 percent, respectively, and shipments to Southeast Asia were flat. The outlook for exports is lacklustre as the customs department's export leading indicator fell to 35 in May from 35.9 in April. [ID:nL3N0YR1Q6]

The sluggish export data is regarded as short-term pain as China shifts to a consumption-driven economy from a export-driven powerhouse. "The appreciation of REER is helping the Chinese economy to restructure, to more rely on domestic demand," said Yang Zhao, Hong Kong-based chief economist at Nomura Holdings.

But domestic demand has yet to show signs of recovery, with imports (CNIMP=ECI) sliding 17.6 percent year-on-year last month. That widened the trade surplus to $59.5 billion, close to the record high of $60.6 billion and suggesting more strengthening of the yuan. Economists reckon China will keep the yuan firm as it tries to get the yuan into the International Monetary Fund's (IMF) Special Drawing Rights. Acceptance into the IMF's reserve currency basket is seen as a major boost for the yuan's global stature. The People's Bank of China (PBOC) is also expected to keep the yuan where it is to support companies' willingness to settle trade in yuan more generally. "The yuan appreciation will continue," said Shen Jianguang, Hong Kong-based economist at Mizuho Securities. "The PBOC policy is to maintain a strong renminbi."

Record yuan strength hurts Chinese exports, immediate let-up unlikely - Yahoo Finance

 

[tranquilium]

Well, rising currency will increase the price of export, but as long as it doesn't rise suddenly and uncontrollable, the rising price will be balanced out by reduced cost of raw material import and let's face it, if Yuan truly intends to replace USD, it will have to be a strong and desirable currency, ie, its value will rise.

Though, from historical lessons, such as Japan Plaza record, Chinese government should take care and set policy to prevent overflow of hot cash into the real estate and stock market.

 

[cnleio]

Well, rising currency will increase the price of export, but as long as it doesn't rise suddenly and uncontrollable, the rising price will be balanced out by reduced cost of raw material import and let's face it, if Yuan truly intends to replace USD, it will have to be a strong and desirable currency, ie, its value will rise.

Though, from historical lessons, such as Japan Plaza record, Chinese government should take care and set policy to prevent overflow of hot cash into the real estate and stock market.

Im afraid China is following Japan Plaza Record ... right now China stock market rise up to 5,100 point from 20,00 just after 4~5x months due to billions of hot money get in, and China house price rise up 40% during recent Five months especially in ShenZhen 50+% up.

If someone ask me what's today China looks like, i only reply right now Chinese is CRAZY ! Nothing can stop Hundred billions of HOT MONEY flood into the real estate and stock market ... i feel disappointed to P.M Li and his government, their policy r killing China health economy. If situation get worse, China will copy the failture of Japan Plaza Record ... now foreign HOT MONEY is everywhere in China.

Im thinking to exchange some USD by RMB, to save my property. (Li is not good at his job)

 

[tranquilium]

Im afraid China is following Japan Plaza Record ... right now China stock market rise up to 5,100 point from 20,00 just after 4~5x months due to billions of hot money get in, and China house price rise up 40% during recent Five months especially in ShenZhen 50+% up.

If someone ask me what's today China looks like, i only reply right now Chinese is CRAZY ! Nothing can stop Hundred billions of HOT MONEY flood into the real estate and stock market ... i feel disappointed to P.M Li and his government, their policy r killing China health economy. If situation get worse, China will copy the failture of Japan Plaza Record ... now foreign HOT MONEY is everywhere in China.

Im thinking to exchange some USD by RMB, to save my property.

Erm, 2015 Jan to May Real Estate market sector report is out:

2015年1-5月份全国房地产开发和销售情况

The market is actually slowing down comparing to a few years ago. It certainly doesn't fit the whole "hot money pouring in" description.

As for stocks, I am looking at these:
大陆股市_行情首页_新浪财经_新浪网
and long term trend:
数据简报:上证综合指数历史走势图(1991年以来)

In comparison, this is the five year Yuan to USD chart:
XE.com - CNY/USD Chart

Here is my opinion, the stock market is most definitely heating up. While it is yet to be at the same level as the 2006-2007, which triggered a political intervention from the central government, it is definitely getting there. It is unknown if and when the central government will step in again.

That being said, it is also not the same as the plaza accord case. For one thing, the Yuan appreciation is a slow and gradual process which gives the economy time to adjust. The real estate market is also slowly down. I do believe, however, in the next few month or a year, we will see policy adjustment on stock market.

Of course, I very much doubt the "copy the plaza failure" part. My discussion is more on observing the danger of economy shifting from manufacturing to virtual investments such as stock or real estate, ie, sectors that can't support the nation by themselves and are eating up the capital. China's situation today is much too different from Japan in1995. Japan was and still is, operating without economic and military independence from US. China is completely different. The economic structure of China is also much more complete and stable.

 

[grand]

china must have a strong & stable currency to internationalize the yuan. also, there is bubble in chinese stock market, but no where near the bubble territory the us and europe in. despite china being the fastest growing major economy in the world, china's stock market is still 20% bellow its all time highs. the us economy isnt growing much and europe is in recession but the us, uk, and germany stock market is at all time highs.

 

[tranquilium]

china must have a strong & stable currency to internationalize the yuan. also, there is bubble in chinese stock market, but no where near the bubble territory the us and europe in. despite china being the fastest growing major economy in the world, china's stock market is still 20% bellow its all time highs. the us economy isnt growing much and europe is in recession but the us, uk, and germany stock market is at all time highs.

To be honest, I think people are way too afraid of bubble this and bubble that. US real estate market bursts something like 2 or 3 times every generation and you don't really that destroying US.

 

[cnleio]

Erm, 2015 Jan to May Real Estate market sector report is out:

2015年1-5月份全国房地产开发和销售情况

The market is actually slowing down comparing to a few years ago. It certainly doesn't fit the whole "hot money pouring in" description.

As for stocks, I am looking at these:
大陆股市_行情首页_新浪财经_新浪网
and long term trend:
数据简报:上证综合指数历史走势图(1991年以来)

In comparison, this is the five year Yuan to USD chart:
XE.com - CNY/USD Chart

Here is my opinion, the stock market is most definitely heating up. While it is yet to be at the same level as the 2006-2007, which triggered a political intervention from the central government, it is definitely getting there. It is unknown if and when the central government will step in again.

That being said, it is also not the same as the plaza accord case. For one thing, the Yuan appreciation is a slow and gradual process which gives the economy time to adjust. The real estate market is also slowly down. I do believe, however, in the next few month or a year, we will see policy adjustment on stock market.

Of course, I very much doubt the "copy the plaza failure" part. My discussion is more on observing the danger of economy shifting from manufacturing to virtual investments such as stock or real estate, ie, sectors that can't support the nation by themselves and are eating up the capital. China's situation today is much too different from Japan in1995. Japan was and still is, operating without economic and military independence from US. China is completely different. The economic structure of China is also much more complete and stable.

I say next years China GDP growth will keep going down ↓ 7% ... China export also going down, low-end & middle-end production chain keep moving to South-east Asia and South Asia from China ... Hi-techs still have big gaps with West especially U.S, that need cost many many years to invent & design by ourselves due to West hi-tech monopoly & sanctions to CCP's China ... 'Made in China' losing power and foreign hot money in everywhere, now CCP just trying many ways to keep those money in China to cover up weak export and avoid huge hot money return the West, they didn't care local Chinese feelings and our living standards. Yes, in my eyes ... China is close to the Middle-Income Trap.

As far as my experience, P.M Li and his government just make me feel disappointed ... they only know QE and print more cash again. The Yuan is rapid devalue inside China and hurt our Chinese families.

 

[northeast]

I say next years China GDP growth will keep going down ↓ 7% ... China export also going down, low-end & middle-end production chain keep moving to South-east Asia and South Asia from China ... Hi-techs still have big gaps with West especially U.S, that need cost many many years to invent & design by ourselves due to West hi-tech monopoly & sanctions to CCP's China ... 'Made in China' losing power and foreign hot money in everywhere, now CCP just trying many ways to keep those money in China to cover up weak export and avoid huge hot money return the West, they didn't care local Chinese feelings and our living standards. Yes, in my eyes ... China is close to the Middle-Income Trap.

As far as my experience, P.M Li and his government just make me feel disappointed ... they only know QE and print more cash again.

Our trade surplus is recordly high.What you've said doesn't make sense at all.A strong yuan is the only way to become a developed country.You have to lose something in order to achieve something greater.

 

[tranquilium]

I say next years China GDP growth will keep going down ↓ 7% ... China export also going down, low-end & middle-end production chain keep moving to South-east Asia and South Asia from China ... Hi-techs still have big gaps with West especially U.S, that need cost many many years to invent & design by ourselves due to West hi-tech monopoly & sanctions to CCP's China ... 'Made in China' losing power and foreign hot money in everywhere, now CCP just trying many ways to keep those money in China to cover up weak export and avoid huge hot money return the West, they didn't care local Chinese feelings and our living standards. Yes, in my eyes ... China is close to the Middle-Income Trap.

As far as my experience, P.M Li and his government just make me feel disappointed ... they only know QE and print more cash again. The Yuan is rapid devalue inside China and hurt our Chinese families.

It is certainly possible for the GDP growth to be 7% or lower. Remember, while we say the past few decades are "decades of double digit growth", in practice, there are quite a few years where the growth rate was below 10%. Late 1989 also saw 3 to 4% growth rate. Similar late 90s China only has a growth rate of around 8%. Economic growth comes in cycles. After a long period of high growth, it is only natural for the economic to enter a slow period. Plus, the world is still in recession right now and China itself is under going re-structuring, so slow down is expected.

As for "weak export", I have a different opinion on that. It is true that you see more daily product coming from countries like vietnam, malaysia or thailand, but that's just daily products. As far as industry goes, more and more capital equipment is being produced by China. There are used to be derogatory remarks that "A thousand shirts produced by China gives less profit than a single piece of machinery". Well, congratulation, we now moves the "thousand shirts" part to Vietnam, Malaysia or India and are producing the high tech product. The overall Chinese export is still going up and continuously expanding its share and now into high tech industries.

A common mistake is the China vs world syndrome in technological development. The technological gap vs west? There isn't a country called west. It is a collection of dozens of individuals countries, each with their own strength and weakness. For example, US is good at integrated circuits design and manufacturing, but I would take a German PLC panel over a US one because Germans are simply better at that particular piece of technology. Similarly, I would take a Swiss watch over both the German and US one, but not a piece of motor from there. The EU and US divide in the western camp is especially worth noticing. Why do you think we are investing all those money to EU?

As far as living standard goes, I watch CCTV-1 everyday. A great deal of reforms and changes are on living standards. As far as feeling goes, that 's a bit more complicated. I am always of the opinion that it is not possible to satisfy everyone and certainly not everything everyone wants. It is not that strange. We all wants what we can't have and it is only natural not everything you want is satisfied.

 

[MarkovChain]

I say next years China GDP growth will keep going down ↓ 7% ... China export also going down, low-end & middle-end production chain keep moving to South-east Asia and South Asia from China ... Hi-techs still have big gaps with West especially U.S, that need cost many many years to invent & design by ourselves due to West hi-tech monopoly & sanctions to CCP's China ... 'Made in China' losing power and foreign hot money in everywhere, now CCP just trying many ways to keep those money in China to cover up weak export and avoid huge hot money return the West, they didn't care local Chinese feelings and our living standards. Yes, in my eyes ... China is close to the Middle-Income Trap.

As far as my experience, P.M Li and his government just make me feel disappointed ... they only know QE and print more cash again. The Yuan is rapid devalue inside China and hurt our Chinese families.

China economy has historically reacted brilliantly to fiscal influxes but is currently using monetary policy to stimulate economy when in a fixed exchange rate regime. That puts pressure on the currency/reserves - since the money supply outward cancels out the extra influx of money supply by lower interest rates. The ideal solution would be to devalue Yuan, but China has conflicting objectives in maintaining Yuan's strength to portray as an alternative to dollar, while at the same time stimulating economic growth. One will ultimately take priority over the other I think.

 

[Jlaw]

Record yuan strength hurts Chinese exports, immediate let-up unlikely



June 11, 2015 4:20 AM

By Patturaja Murugaboopathy

BENGALURU (Reuters) - Already hit by ebbing global demand, Chinese exports face another obstacle - the yuan has strengthened against the currencies of China's trading partners by a record margin, data from the Bank of International Settlements (BIS) shows.

The yuan's real effective exchange rate (REER) - calculated on a trade-weighted basis against a basket of currencies and adjusted for inflation - stood at 130.4 in April versus a base of 100 in 2010, the BIS data shows. That means the yuan is 30 percent stronger than the currencies of its trading partners compared with 2010 levels. It was also near the record 131.4 in March. The currencies of Japan, India and Southeast Asian nations have depreciated against the dollar so far this year as a result of their expansionary monetary policies. Yet the yuan (CNY=CFXS) has been flat against the dollar.

China's exports (CNEXP=ECI) in the first five months rose 0.7 percent from a year earlier, far from the government's target of 6 percent this year. Exports to Europe and Japan fell 6.9 percent and 8.1 percent, respectively, and shipments to Southeast Asia were flat. The outlook for exports is lacklustre as the customs department's export leading indicator fell to 35 in May from 35.9 in April. [ID:nL3N0YR1Q6]

The sluggish export data is regarded as short-term pain as China shifts to a consumption-driven economy from a export-driven powerhouse. "The appreciation of REER is helping the Chinese economy to restructure, to more rely on domestic demand," said Yang Zhao, Hong Kong-based chief economist at Nomura Holdings.

But domestic demand has yet to show signs of recovery, with imports (CNIMP=ECI) sliding 17.6 percent year-on-year last month. That widened the trade surplus to $59.5 billion, close to the record high of $60.6 billion and suggesting more strengthening of the yuan. Economists reckon China will keep the yuan firm as it tries to get the yuan into the International Monetary Fund's (IMF) Special Drawing Rights. Acceptance into the IMF's reserve currency basket is seen as a major boost for the yuan's global stature. The People's Bank of China (PBOC) is also expected to keep the yuan where it is to support companies' willingness to settle trade in yuan more generally. "The yuan appreciation will continue," said Shen Jianguang, Hong Kong-based economist at Mizuho Securities. "The PBOC policy is to maintain a strong renminbi."

Record yuan strength hurts Chinese exports, immediate let-up unlikely - Yahoo Finance

On a serious note, why would you believe anything from Reuters especially written by Patturaja Murugaboopathy

 

[MarkovChain]

On a serious note, why would you believe anything from Reuters especially written by Patturaja Murugaboopathy

Because it's not state sponsored journalism and he has criticized India in the past too?
India's slowing profits growth offers wake-up call for record-high shares| Reuters

 

[Jlaw]

Well, rising currency will increase the price of export, but as long as it doesn't rise suddenly and uncontrollable, the rising price will be balanced out by reduced cost of raw material import and let's face it, if Yuan truly intends to replace USD, it will have to be a strong and desirable currency, ie, its value will rise.

Though, from historical lessons, such as Japan Plaza record, Chinese government should take care and set policy to prevent overflow of hot cash into the real estate and stock market.

Actually no we are not following Plaza Accord. Plaza Accord was forced by the US against the Japanese to increase their yen. If China want to devalulate the Yuan they need to print an extra $2trillion USD and put it into the economy.

The rising rmb mean China isn't printing enough money.